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Latest IRI Report Dissects Challenges for 'The New Wal-Mart'

CHICAGO -- Describing Wal-Mart as a "retail powerhouse in transition," Information Resources, Inc. here took a deeper look at Wal-Mart's dilemma and predicts what its next steps may be, in its latest "Times & Trends" report.

May 29, 2006, 08:00 pm

CHICAGO -- Describing Wal-Mart as a "retail powerhouse in transition," Information Resources, Inc. here took a deeper look at Wal-Mart's dilemma and predicts what its next steps may be, in its latest "Times & Trends" report.

Wal-Mart's growth rates, while still extraordinary, have steadily decelerated over the past five years, IRI noted. Supercenter expansion, the company's primary growth engine, is no longer netting new consumers, and core lower-income consumers have been forced to decrease discretionary spending due to rising gas and heating costs, IRI said.

In true Wal-Mart fashion, the Bentonville, Ark.-based retailer has responded to this challenge with a comprehensive transformation plan designed to reduce its dependence upon core shoppers. Wal-Mart's top one-third of shoppers comprise 80 percent of the retailer's CPG sales. These shoppers skew lower-to-middle income and under age 55. While Wal-Mart will continue to invest in protecting and growing share within this core segment, the company also has several initiatives underway to increase sales among more affluent, "selective shoppers" and 55+ consumers.

Organic products represent strong growth potential for Wal-Mart, according to IRI. Given Wal-Mart's low share of organic food and beverage products currently (just 5.2 percent, versus a 16.4 percent share of total CPG spending), the retailer's increased focus on organics is likely to yield substantial growth for Wal-Mart and create a ripple effect throughout the industry. In addition to attracting upper income consumers to its stores, Wal-Mart's organic focus will expand the market, lower prices, challenge traditional retailers' newfound organic success, and place increased competitive pressure on non-organic brands, IRI predicted.

Wal-Mart is leveraging healthcare initiatives to attract and retain consumers aged 55 and over. Projected to grow 30 percent between 2005 and 2015, the 55-plus consumer segment is critical to all mass market retailers, but IRI said its research shows that consumers are likely to switch share from supercenters to drug stores as they transition into their senior lifestage. Wal-Mart has invested in protecting and growing share within this segment through healthcare initiatives, including chronic disease prescription refill programs and health information as well as a comprehensive Medicare Part D educational initiative targeting seniors.